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Published Date: 29-06-2020 | Author : Innovsoltech

Critical Choices for VCs Post Covid-19

Since the COVID-19 pandemic affects business worldwide, dipping the world to the brink, equilibrium will eventually be reached with poise and strength. We are hopeful that the optimism and grit of life will lead to the beginning of something special from the relics of debris.

Although the adverse effects of the epidemic may seep away in a year, S&P Global Ratings predicts credit measures would take a while to improve for some sectors.

There is a significant rise in debt issuance and borrowing to provide cash flow, with a total year-to-date of $1.6 trillion rising 60 percent from 2019. Increased lending used to feed cash flow may delay the revival of financial indicators for some businesses beyond a sheer earnings recovery by 2022, 2023, and beyond.

Additionally, industries like Aviation, Non-essential retailers, and travel and tourism with hotels and entertainment will face long term impacts that would hinder a recovery. Some industries are much less impacted, such as pharmaceuticals, health care, media, and essential retail.

The present restrictions on travel and social distancing create the longer-term prospect for budding businesses to innovate, diversify, or revisit their offerings. Currently, we're observing an automation explosion driven by Covid-19 in many contemporary businesses. For a digital-first consumer behavior and customer preference, all types of business processes are re-engineered and getting automated for the new normal.

Although businesses are strained to deal with severe cost pressure while trying to keep up and retain their current earnings, we would expect to see a profound change in how businesses would run based on the following four dynamics in the long run.

 Digital Business Model

Companies have boosted their propensity for digital transformation as much as possible, based on their current readiness for technology infrastructure, practices, and ethos. This wasn't a case of whether to go digital and embrace automation, but how easily they would scale it to create an efficient digital workforce and continue attracting customers.

 Cost reduction and Improve Operational Efficiency

Cognitive process automation a must for businesses to differentiate and implement cost reduction and improve operational efficiencies in this crisis. Operation powered by intelligent RPA and the AI is the new normal.

 Impact on Top-Line and Bottom-Line

CFOs are setting ambitious cost-cutting targets as the recession is punching the top and bottom lines.

 New ways of working

Companies are transitioning into the new digital-first business model and a new way of working. Leaders are busy identifying, reconsidering, and refocusing on the most significant technology transformation in this regard for the most cost-effective and efficient recovery process.

There is a change in the credit market as well –

  • Interest rates/lending rates are low.
  • People tend to keep the cash in their hand t rather than on the deposit, and, most notably.
  • There is anxiety that banks are likely to get anxious – at some stage in the foreseeable future – that the credit supply may freeze.

Therefore, the investment must be firmly allied with the potential changes in the market. Venture capitalists who invest heavily in emerging technologies will play a crucial part in shaping the future after COVID-19.

Although it's too early to conclude the profound implications of the epidemic and how it would unfold, our research and analysis of the market for the last few months brings us to the following two main criteria that VCs should look into while making investment decisions -

 The next digital revolution - Cognitive Automation

As the eighteenth-century Agricultural Transformation led the way for Britain's Industrial Revolution, RPA is the fourth revolution that would lead the world into a digital era of hyper-automation. So VCs should focus on technology companies that are innovating products on Cognitive Robotic Process automation.

 Enduring team and influential Founders

Enduring a team that is driven, while salaries are cut, or furloughing implemented, or while they are operating from home and balancing physical and mental wellbeing issues of the family is extremely difficult.

It's about rising to the occasion and how someone demonstrates leadership and steps up in this tough moment, take care of the workers and clients, enhance the product, grow the market share, giving the products for free for a short period or identify the best talent that was not accessible before.

The founders who effectively plan, manage, and inspire their employees in the present crisis will be the business pioneers of tomorrow.

We sincerely believe that business is not just about making money. This serves a greater purpose: creating value and developing powerful products driven by the innovation that the world needs. Investors and entrepreneurs should focus on creating value rather than relying on hype. Money is not a trigger but an outcome.

Generally, VCs have invested primarily in the most resilient and promising sectors through testing times, as they do have the wealth and the sense of formidable instincts. They have passed through different stages from the early days and maintained a steady pulse throughout, but their best judgments come when a crisis occurs. So, in this crisis, they will make the most influential deal ever.

The trick for the VC’s to disrupt and to resist a "Conservative" and "Rigid" approach and keeping a long-term view of investing in something that is going to make a difference to the world.